YouTube music streaming plan sends indie labels into spin

People arrive for the YouTube Music Awards in New York in 2013.
(REUTERS/Andrew Kelly)

Independent music labels are clashing with YouTube over the licensing terms of the video sharing site’s forthcoming music streaming service.

YouTube’s Global Head of Business Robert Kyncl told the Financial Times that the new service, rumored to called “Music Pass”, is set to launch later this year. The service will follow the model of competitors like Spotify and Beats Music by charging a flat monthly fee for unlimited, ad-free music streaming.

YouTube has reached agreements with 95% of the labels that the site already does business with, according to Kyncl. The New York Times reports that YouTube has clinched licensing deals with the three major record labels - Sony, Warner, and Universal.

Recently, trade groups representing smaller independent, or “indie” labels have asserted in press releases that YouTube is offering contracts to indie labels that are paltry compared to the deals they cut with the major labels. Not many details regarding these contracts have been released, but people like Alison Wenham, chairman of independent music trade group WIN, insist that YouTube is cutting indie labels unfair deals.

“YouTube is attempting to force terms upon the independent sector which we understand are significantly inferior to those offered to the international ‘major’ record companies” Ms. Wenham said, according to a Forbes report.

One complaint of trade groups and the labels they represent has to do with YouTube’s proposed payment rates. According to Billboard, the company’s offer promises that 65.5% of revenues generated by the streaming service will go to content providers, with 55% going to labels and 10% going to publishers and performance rights organizations. Comparatively, streaming services Spotify and Rdio offer around 70% of their revenues to labels.

These rates will apply to major labels as well, but indie labels are particularly disgruntled because YouTube’s licensing deal includes a “negative most-favored nation clause”, Billboard reported. That will further reduce payments for involved indie labels if any of the three major labels agree to a payment rate lower than 65.5%.

YouTube would likely upset its paying customers by offering content for free on its main site that cannot be accessed on the streaming service. To resolve this, the company may remove the content of any label that refuses to sign a deal with the service from its main site. This would be devastating for indie labels and artists. YouTube’s tremendous online viewership creates opportunities for exposure otherwise unavailable to those who lack the promotional push of a major label.

Rumors of impending content removal have inflamed resentments among indie labels, artists, and fans, who interpret the situation as a case of corporate strong-arming.

Many fear that if Beggars Group, an indie label that houses popular artists like Alabama Shakes and Bon Iver, fails to reach an agreement with YouTube, all of the label’s content will disappear from the site.

The reality is not that simple. If YouTube goes through with these removals, it can only take down videos released directly by the label that generate ad revenue. It can’t touch any videos uploaded by regular users. It also can’t remove any content released through Vevo, a prominent video hosting service that has exclusive rights to the videos of many popular indie artists, including Adele and Vampire Weekend.

Some have speculated that YouTube will only prevent non-compliant indie labels from monetizing their videos on the free site, meaning the content would remain but it would no longer come with revenue-generating ads.

Either way, the indie community feels its labels and artists are being bullied by a corporation with the power to manipulate the digital music market.

Richard Bengloff, President of the American Association of Independent Music (A2IM), has written to the Federal Trade Commission asking that the government intervene in what he sees as a conscious effort by YouTube, Universal, and Sony to marginalize smaller competitors. In the letter, Bengloff argued that YouTube “forcing” indie labels to accept payment rates inferior to those offered to major labels with threats of content removal “constitutes an abuse of a dominant position, with regard to the digital music and video streaming circuit.”

This belief has been echoed by executives, artists, and onlookers who feel the proliferation of indie music is the best means of ensuring progress and innovation in popular music as a whole. “Indie artists and labels are at the cutting edge of the future of music” Radiohead guitarist Ed O’Brien told Billboard. “To restrict them in this way is to risk creating an Internet just for the superstars and big business.”

YouTube has not yet responded to a request for comment on this article from FoxNews.com.